Zhou: no basis for yuan to fall further
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E-mail Shanghai Daily, February 15, 2016
The yuan has no basis to continue depreciating and the central bank will reform the exchange rate "with patience," the People's Bank of China governor said in a weekend interview.
The yuan is supported by a large trade surplus, manageable inflation, and a good balance of international payments, Zhou Xiaochuan told Caixin magazine.
"In the past a few years, the exchange rate of the yuan has been excessively stable compared with other currencies. This created unrealistic expectations on the international market that the yuan should be very stable," Zhou said in comments before the market re-opens today from a weeklong Chinese New Year holiday.
"Now slight movements of the yuan exchange rate will arouse strong reaction about its spillover effects. Actually, such movements are smaller than that of the yen and euro, not to mention currencies of emerging markets such as Russia and Brazil."
He pointed out that there is no massive capital flight from China, the yuan is relatively stable or even slightly stronger compared with a basket of currencies of China's major trading partners.
Zhou attributed the recent capital outflow from China to companies adjusting their foreign exchange strategies and hot money exiting the market.
"In the past many years China has witnessed net capital inflow, and a part of it may be ‘hot money,'" Zhou said. "It is nothing strange that some will look for good opportunities to withdraw."
He also dismissed talk that the PBOC will tighten capital control, and said the central bank aims to create a more flexible exchange rate "with patience."
China's foreign-exchange reserves shrank in January to US$3.23 trillion, the lowest since 2012.
But the month-on-month decline of US$99.4 billion was below December's US$107.9 billion and outperformed market expectations.
Analysts said Zhou's comments signaled the yuan could be stable in the near future and the authorities will not risk aggressive financial reforms amid great uncertainties.
"The comments showed that China won't deliberately devalue its currency to boost export and economic growth, and it would not allow speculators to manipulate the market," said Ren Zeping, chief macro-economic analyst of Guotai Junan Securities.
"The depreciation pressure on the yuan is easing also as the US dollar index showed signs of weakness during the holiday break," Ren said.
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